Packet 2 Pipelines and Economics

Page 1: Introduction to Natural Gas Resources

Economic Viability

  • Natural Gas Supply: The U.S. has abundant recoverable natural gas from shale, projected to meet domestic demand for over a century at current consumption levels.

  • Environmental Perspective: While natural gas is relatively cleaner than coal, the fracking process poses environmental risks.

Environmental Concerns

  • Fracking Process: Involves significant risks to local air quality and water resources. Methane emissions, which are more potent than CO2, must be closely monitored to mitigate impact on climate change.

  • Transition Delay: The affordability of natural gas could impede the shift to carbon-free energies like solar and wind, which are vital amid climate concerns.

Historical Context

  • Production Trends: Until 1986, gas production and consumption were balanced; post this period, consumption surpassed production, relying on imports from Canada.

  • Technological Advancements: In 2006, new drilling technologies tapped vast natural gas supplies from shale, increasing production from 10% in 2007 to 30% by 2010.

  • Price Changes: Due to increased supply, natural gas prices dropped significantly, reaching historical lows.

Page 2: Economic and Sectoral Impact of Natural Gas

Pricing and Demand

  • Natural Gas Prices: Currently lower than diesel and gasoline on an energy-equivalent basis. This drop is beneficial for the economy, impacting various sectors.

  • Sector Contributions: In 2011, natural gas supplied about 25% of U.S. primary energy. The breakdown of natural gas demand is as follows:

    • Electricity Generation: 31%

    • Industrial Use: 28%

    • Residential Use: 19%

    • Commercial Use: 13%

Economic Benefits

  • Cost Savings: Consumers and industries benefit from lower utility bills. Shifting from coal to natural gas in electricity generation has led to lower CO2 emissions and reduced reliance on coal.

  • Emissions Reduction: Since 2005, coal's contribution to electricity generation has decreased from 50% to 34%, contributing to record low CO2 emissions in early 2012.

Supply and Demand Dynamics

  • Basin Variability: Different shale formations yield varying hydrocarbon compositions; dry shales (gas-rich) and wet shales (containing natural gas liquids) impact profitability and production costs.

  • Market Adjustability: A sustainable price for natural gas extraction is approximately $5/MMBTU, influencing market dynamics, including potential gas-to-transportation shifts.

Page 3: Export Potential and Environmental Concerns

Export Opportunities

  • Global Demand: Natural gas prices overseas are significantly higher, creating potential for U.S. exports. Japan shows high demand post-Fukushima, necessitating infrastructure investments.

  • Environmental Benefits of Exports: Shifting coal-dependent countries like China to cleaner natural gas could decrease local pollution and mitigate global CO2 emissions.

Fracking Process Overview

  • Extraction Techniques: Involves vertical drilling to reach shale layers, followed by horizontal drilling to maximize gas flow. Water mixed with sand and chemicals is injected to fracture rock.

  • Contamination Risks: Fracking can contaminate groundwater if precautions are not taken, making monitoring crucial during and after well exploitation.

Page 4: Environmental and Regulatory Challenges

Water Management

  • Contaminated Water: Return water surfaces contaminated, including potential radioactive elements. Disposal requires thorough treatment processes.

  • Regulatory Oversight: Ensuring the integrity of seals isolating wells from aquifers is vital to prevent local water sources from contamination.

Fugitive Emissions

  • Methane Leaks: Careless drilling can lead to significant methane emissions, counteracting CO2 reduction benefits. International Energy Agency suggests steps to ensure responsible extraction.

Page 5: Transitioning to Renewable Energy

Carbon-Free Future

  • NREL Study: Suggests potential for an 80% reduction in CO2 emissions by 2050 through increased wind and solar usage with gas-fired plants for backup.

  • Economic Competitiveness: Success in this transition relies on relative electricity generation costs among coal, natural gas, wind, and solar.

Needed Regulatory Actions

  • Carbon Pricing: A need for policies to keep gas prices competitive against coal for sustainable energy transition. Carbon taxes may be essential if gas prices rise.

  • Long-Term Planning: A multi-faceted approach is necessary to balance the current dependencies while paving the way for renewables.